LAS VEGAS -- Working in their spare time, without a budget and under extremely tight deadlines, three Microsoft Corp. employees came up with a product that the company is now using to lead its charge into the portable media market.

But first they had to rescue it from the men's room.

Two years ago, hours before Bill Gates was to publicly unveil the hand-held Portable Media Center audio and video player, Microsoft's Brian King and Marcus Ash were walking to the Las Vegas exhibit hall when they realized that they had left their best prototype sitting in a public restroom.

They ran back and, to their great relief, found it still there.

Disaster averted, the company was able to show the prototype that evening, during Gates' keynote address at the 2003 Consumer Electronics Show. The positive reception helped Microsoft solidify deals with hardware makers and build to the release of the first varieties of Portable Media Centers a few months ago.

Microsoft tried to create new momentum for the products this week, at this year's Consumer Electronics Show, announcing deals with TiVo Inc. and others in an effort to generate more sources of video content for the Portable Media Centers.

"We're just making this portable video scenario come into the mainstream," Gates said this week. "In some ways, it's really common sense that you'll want your video everywhere."

But the Portable Media Centers face big competition, including Apple's dominant iPod and a slew of additional multimedia devices. Many are on display at this year's show, such as Sony Corp.'s new hand-held gaming machine, the PlayStation Portable, which doubles as a video player.

However, no matter how the competition unfolds, the story of the Portable Media Center's creation shows how much Microsoft, for all its size, still relies on small groups of motivated and enterprising employees to spark new products and ideas.

Genesis of the idea

The project began in spring 2002. King and Ash were part of the team that makes Windows CE, the underlying Microsoft operating system that runs a wide variety of devices. One day, they started talking about their shared desire to work directly on a specific consumer product.

At the time, the iPod music player was gaining traction, showing what could be done with a portable, hard drive-based media device. And Microsoft already was making big investments in digital pictures, digital music and Media Center PC software for recording and watching television on a computer.

King and Ash settled on the notion of merging those two trends into portable machines that would let people not only listen to music but also view digital photos and watch recorded television, films and home movies wherever they wanted.

"We thought the combination of those three things on the same device could be a real killer," Ash said.

Not everyone agrees. Steve Jobs, whose Apple Computer makes the iPod, contends that the real demand for portable media players is for background activities, such as listening to music, not for immersive ones, such as watching movies.

But the Microsoft employees behind the Portable Media Center believe there will be a substantial market for portable players that provide both types of experiences.

As one piece of evidence, they point out that Apple itself has introduced a high-end version of the iPod music player with the added ability to view photos on a color screen, giving it two of the Portable Media Center's three primary capabilities.

"We're way ahead of them by having full video content and recorded TV content," King said. "We'll continue to work in that area and improve, and they now have to play catch-up. That's a fantastic spot for us to be in."

Developing the project

Ash, a lead software developer, and King, a lead program manager, had each been at the company for less than three years when they came up with the Portable Media Center idea. For guidance, they consulted with some Microsoft veterans who offered advice on how to proceed.

Udiyan Padmanabhan, then a program manager on Ash's team, joined them in the project.

But because the project wasn't yet formalized or funded, all three employees did their Portable Media Center work in addition to their regular Windows CE jobs during that initial year -- working nights, weekends and whenever they could grab a spare moment. They found enough time to hone the concept and pitch it to key players inside the company, steadily building support.

A key turn of events came several months into the project, when Microsoft's Bill Wittress joined the effort. An experienced product manager intrigued by the Portable Media Center idea, Wittress was able to lobby for the team internally and help jump-start the quest for device makers.

Race to the keynote

In early December 2002, the team hadn't yet created a physical prototype of a device, but they were able to show an emulation of the software on a PC to executives putting together the company's demonstrations for the 2003 Consumer Electronics Show -- which at that point less was than a month away.

The executives liked the concept, and they agreed to include the device in Gates' CES keynote address, assuming the team could come up with an actual prototype in the meantime.

"After this meeting happened, we were all sitting around and we were looking at each other, and we were like, 'Oh, no. What have we done?' " King recalled. "We've signed ourselves up to be in the keynote. We have nothing!"

Then the sprint began.

As a group, with help from others at the company, they worked essentially around the clock, developing the software and coming up with usable content for the devices. They created prototypes out of Pocket PCs, hard drives, battery packs and other components encased in custom plastics from a local machine shop.

It was down to the wire as the show approached -- so much so that King ended up flying to Las Vegas without time to first go home and pack a bag. It was in that weary state, on the morning of the keynote, that he left their best prototype on a shelf above a urinal in a public restroom.

After the prototype was safely retrieved, the team sat in the audience that evening, gripping the arms of their chairs as Gates and Microsoft consumer executive John O'Rourke showed the device, then known by the code name, "Media2Go."

It went off without a hitch.

King, Ash and Padmanabhan soon learned that the company would fund the project and build a larger team to make and market the software. Their side project would become their full-time assignment.

Not everything went as planned from there. When Microsoft unveiled the Portable Media Center prototype, the company announced that four device makers -- Sanyo, Samsung, ViewSonic and iRiver -- were planning to launch variations of the hand-held audio/video players in time for the 2003 holiday season.

On sale one year late

That proved too optimistic. The first Portable Media Centers didn't go on sale until this past fall, a year after the initial target. And not all the originally announced hardware makers were in that first wave. Devices from three companies -- Creative Technologies, Samsung, and iRiver -- are currently on the market.

Each of those companies designed its own variety of hardware around the Microsoft software. With 20-gigabyte hard drives, the current devices are available at prices between $450 and $500, about the same price as the 40-gigabyte iPod Photo.

Microsoft declined to disclose holiday sales figures for the Portable Media Centers. Industry analyst Richard Doherty, citing what he called lackluster promotion, said awareness of the devices hasn't gone much beyond tech enthusiasts.

"The buzz didn't build," said Doherty, research director of the Envisioneering Group. "They're almost invisible, which is a shame."

Content is key

Yet Microsoft notes that this holiday season was only the first step. The company's typical strategy with its digital-media products has been to initially target a core, tech-savvy audience, before trying to broaden the reach to a mass market.

"We're very happy with where we are," said James Bernard, lead product manager on the Portable Media Center team. "We launched the device knowing that it was going to be in the vanguard of this new space."

Analysts say one key will be for Microsoft and its partners to make more video content available to Portable Media Center users. The devices already draw content from Media Center PCs and other computers, but other legal sources of video, such as downloadable movies, aren't yet abundant or easy to use.

"If the Portable Media Centers are going to take off, there's going to have to be more ways to get video onto them," said analyst Tim Bajarin, president of Creative Strategies Inc.

Microsoft sought to begin addressing that challenge with the video-content initiatives announced this week at the Consumer Electronics Show. Deals with TiVo and MTV Networks, plus a new MSN video download service, are all expected to provide new sources of video for the devices.

The team presses on

Over the past two years, the Portable Media Center team has grown to about 30 people.

King, 34, and Padmanabhan, 27, both still work there. Ash, 30, has been named to a new position as technical assistant to Pieter Knook, senior vice president in the company's Mobile and Embedded Devices division.

Reflecting on the early days of the project, they acknowledged that they might have considered it nice back then if Microsoft had set aside time for employees such as they to tackle initiatives of their own choosing.

Google, for example, requires its engineers to spend one day a week working on projects that interest them but aren't directly related to their main jobs.

Looking back, however, the Microsoft group also noted that squeezing the project into their spare time streamlined the process by forcing them to set priorities and concentrate on the most critical areas.

In selling their idea to executives, it no doubt helped that their project fit so well into Microsoft's overall digital-media strategy. But in the end, they said, the experience left them with a new appreciation for the way that small groups of employees with good ideas and perseverance can help shape the company's direction.

"Folks in the trenches have a lot more control and influence than we initially thought we had," Ash said.

In that way, the Portable Media Center development process may have created a blueprint that other Microsoft groups could follow in similar projects -- presumably skipping the part about leaving the prototype in the restroom.